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Fisher Effect

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1. Examine the exchange rate of the U.S. dollar to the Japanese yen in January 2005 versus January 2006.

2. Compute the appreciation or depreciation of the U.S. dollar relative to the Japanese yen.

3. Check the U.S. inflation rate for 2005 and apply the Fisher effect formula. (Please explain the formula and how you got the numbers).

4. Check the average annual inflation rate in Japan for the same time period.

5. Does it support the answer obtained using the Fisher effect?

6. Why or why not?

7. Please cite all references used

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Solution Summary

Calculates the appreciation of currency, and using the inflation rate verifies that it confirms the Fisher Effect.

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